Can San Diego Eliminate the DROP Program?
Friday, June 5, 2009
San Diego City Attorney Jan Goldsmith said the Mayor can close the controversial Deferred Retirement Option Plan (DROP) without the approval of pension system members. Representatives from the city's various public employee unions announced they will challenge Goldsmith's legal opinion.
GLORIA PENNER (Host): When Jan Goldsmith took over as San Diego City Attorney, he promised to make the City Attorney's office into one of the finest municipal law offices in the country. And he and his attorneys certainly have been busy reading documents and checking out the law. Their latest foray into the city charter unearthed a few words that could indicate that the controversial DROP program, or Deferred Retirement Option Plan, was not properly voted for. So, Bob, what's the significance of the City Attorney's findings, which certainly have stirred the waters.
BOB KITTLE (Editorial Editor, San Diego Union-Tribune): Yes, they have stirred the waters, certainly. The potential significance is this: If the program was adopted illegally and, frankly, Jan Goldsmith made a very convincing case that it was adopted in violation of the city charter, that it was not properly adopted, then the city has the right to drop the program—pardon the pun—without having the unions vote and agree to that. Now that means a savings of about $350 million from the two billion dollar unfunded liability, so it's a significant savings for taxpayers if Jan Goldsmith's opinion is upheld in court.
PENNER: Okay, now just to clarify for our listeners, the DROP program means that working city employees who agreed to take this program can continue to work and pull in their usual salary at the same time they're also getting a portion of their retirement, is that…
KITTLE: Well, what it means is this: If you reach retirement age—and for public safety workers, that's age 50…
TIM MCCLAIN (Editor, San Diego Metropolitan Magazine): Right.
KITTLE: …or 55 if you're not public safety, when you reach that age you may continue to work for five years, collect your full salary, and your full pension goes into an escrow account and the taxpayers guarantee an interest rate on that account. It had been, until very recently, a full…
KITTLE/PENNER: …eight percent.
KITTLE: And then at the end of that five years, you can take that amount out as a lump sum. Now what that means is that for some of the higher paid employees at city hall, after five years they have been collecting lump sums in excess of a million dollars. They take that with them and they continue to collect a paycheck that can – I'm sorry, a pension check that can be 90% of their highest year's salary for life, inflation adjusted. So the DROP program is an egregious example of, frankly, excess and greed by the unions. This was – We can't blame the whole pension problem on the unions, that's certainly true, but the DROP program we can blame on the unions because they brought it forward. But it was the firefighters' president, Ron Saathoff, who brought this program forward, and it was an egregious excess and it should be abolished. The city council has abolished it for new hires but, of course, it can only be abolished if that's done legally.
PENNER: So that is the question right now, John, whether it can be abolished and has it been done legally? Right now, my understanding is that it is in superior court, that the unions and the city are now in court on this.
JOHN WARREN (Editor/Publisher, San Diego Voice & Viewpoint): Yeah, the Police Officers Association brought the challenge against it and I think it's very significant. They – I'm sure they probably, in the end, will be sorry that they did so because I don't see how they can possibly win. It's amazing to me that with all the flurry we had with our former city attorney that, in his genius, he missed this and that this city attorney has picked up on it.
KITTLE: Did you say Mike Aguirre?
WARREN: Yeah, that's…
KITTLE: Oh, was that his name? Yeah, yeah, yeah.
WARREN: I couldn't remember his name. Right.
KITTLE: Yeah, it reminds me of the old line in the song that says with Mike Aguirre no longer here – the line goes something like 'honey, I'm so miserable since you left that it's almost like you were here.'
PENNER: Okay, I've got to rein these guys in, that's obvious.
WARREN: So but what we have happening here, in essence, is—and I think it's very significant—that the vote was not taken correctly to put the program in place in the first place. It's almost unbelievable that that happened. But it seems as though the counting that was being done was – didn't go far enough in terms of validating it. And considering that the city attorney comes from the bench in very good standing and has established himself as a person that's very reasonable in his approach, I feel the city's going to prevail in this lawsuit.
PENNER: Okay, so this obviously is something that has stirred up the journalists in the community quite a bit. It's being covered now in all levels, on the web and on print, newspaper, radio and television. I wonder, Tim, whether the people of San Diego are really engaged in this, the fact that there is a part of the city pension plan that is now being questioned that does pay significant dollars to some people who will retire within five years.
MCCLAIN: I love that question. Tony Perry and I have talked about it several times. It's such a fun question. I believe that the number of people who really care about this topic is small when you compare to the population of one million plus in San Diego. I don't think it resonates with them. It's the – you know, it's us. Maybe there's ten thousand of us out there that really care, and that's the audience for it. But what people do care about is what it means for their beaches, their parks, their libraries, the police, how many police officers on their street but they don't draw a direct connection. This is just part of the city's – needs to fix this problem; they don't really care about DROP as an issue. It's just one thing that they see, another thing that the city's messed up on and that they have to fix but details are not necessary to know.
PENNER: But, meanwhile, it's costing the city, costing the taxpayers, because it's back in the courts. Our number is 1-888-895-5727, and you can still get in on this topic before the program ends, so let's hear from David in San Diego. David, you're on with the editors.
DAVID (Caller, San Diego): Hi.
PENNER: Go ahead, David.
DAVID: My comment was twofold. One, that the city attorney's argument or basis for trying to repeal the DROP program is based on a really weak argument that it's a majority of the city workers did not vote. It's majority vote is what is going to be the pivotal part of this argument. The second point is that the reason DROP was instituted was to help the city. When retirees left, there was a shortage of…
DAVID: …of experienced workers who – that would fill the spots so they were kept in to bridge that gap. That supported the city.
DAVID: So it's a win for the city.
PENNER: Okay, thank you, David. Bob Kittle.
KITTLE: Sorry, David, there was no shortage of city workers.
PENNER: Experienced city workers.
KITTLE: Well, experienced or not, this program originated with Ron Saathoff, the president of the firefighters' union. It had been adopted in some other places where unions were strong. This is simply an enormous waste of taxpayer dollars to allow this kind of double dipping. To pay a worker both his full salary and his full pension for five years is absolutely absurd, and it is not necessary to keep the DROP program to attract experienced or qualified workers to the city of San Diego.
MCCLAIN: The – wait, back – I'd like to…
MCCLAIN: …just say – We need to remember history. This was – all took place in the late 1990s, early 2000, and the economy was just jamming then. Unemployment was tumbling under five percent and people were leaving jobs in the public sector to take jobs in the private sector. And so the public sector—San Diego isn't alone–responded to try to stop kind of the brain drain with these programs. But the problem is, is the cyclical nature of the economy and these programs became – You know, they ate the lunch, they ate the room. At the end, they just kept growing and the economy went away and so you're stuck with them. But there was a very real reason to try to retain qualified employees back then because they were being lost from all departments.
PENNER: Okay. So what I want to ask you all now for your opinion on this, my understanding is that City Attorney Jan Goldsmith has said, you know, this is his opinion, this is what he read in the law – in the law as he reads it, but it's really up to the retirement system to make the decision, the retirement system. And so it's in the court, this is true, for, I guess, a restraining order, not to make any changes until this is all settled. So who's going to have the final word on this? Is it going to be Jan Goldsmith? Is it going to be the court? Is it going to be the head of the retirement system? Will it be the union? Will it be the people? Who? Bob Kittle.
KITTLE: Well, the way Jan Goldsmith views it, it is up, now, after he has issued his opinion, for the pension board to vote to eliminate the program. He's recommending this only for those city employees who are not already enrolled in the DROP program so that you don't have the problem of addressing someone who already has started getting the benefit. But, ultimately, Gloria, this will be decided by the courts.
PENNER: It will.
KITTLE: The reason the city and the police officers union are in court is that actually the police officers union agreed to go to court with the city to ask a judge for what's called a validation suit to determine whether the DROP program is a vested interest – a vested pension benefit under state law that cannot be taken away. So that was the issue. And the Police Officers Association has come forward with a request to the judge for an injunction to stop any changes in the program. But, for example, a very significant change already has been made. Some time ago, within a year or so ago, DROP program participants were guaranteed an eight percent income on their DROP accounts by the taxpayers. That has been reduced to, I believe, three and three-quarters or four percent.
PENNER: Okay, well, on that note, Bob Kittle, thank you very much for all of the information you've just poured out for us to think about. I want to thank Bob Kittle of the San Diego Union-Tribune, and John Warren of San Diego Voice & Viewpoint. A hail and farewell to Tim McClain, San Diego Metropolitan magazine. And I thank all of our listeners and especially our callers. This has been the Editors Roundtable. I'm Gloria Penner.
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